Oil expects bearish inventories as OPEC sees little growth in 2013

In spite of market participants focusing more of their attention on the perception of what global oil demand might be down the road, the nearby fundamentals remains mostly biased to the bearish side. Last night's API oil inventory report was neutral to bearish after another large build in gasoline stocks (see below for more details). Yesterday the World Bank issued their latest global forecast suggesting that the global economy is still fragile as high income countries continue to suffer from volatility and slow growth.

The World Bank estimates global GDP grew 2.3% in 2012. Growth is expected to remain broadly unchanged at 2.4% growth in 2013, before gradually strengthening to 3.1% in 2014 and 3.3% in 2015. Developing countries recorded among their slowest economic growth rates of the past decade in 2012, with GDP estimated to have grown 5.1%. Growth for developing countries is projected to expand by 5.5% in 2013, strengthening to 5.7% and 5.8% in 2014 and 2015, respectively.

Growth in high-income countries remains weak, with their GDP expanding only 1.3% in 2012 and expected to remain slow at an identical 1.3% in 2013. Growth should gradually firm to 2% in 2014 and 2.3% by 2015. In the Euro area, growth is now projected to only return to positive territory in 2014, with GDP expected to contract by 0.1% in 2013, before edging up to 0.9% in 2014 and 1.4% in 2015. While diminished, downside risks to the global economy persist and include a stalling of progress on the Euro Area crisis, debt and fiscal issues in the United States, the possibility of a sharp slowing of investment in China, and a disruption in global oil supplies. On the premise that the global economy performs as projected by the World Bank 2014 is likely to be another year of supply outstripping demand especially supply coming from non-OPEC countries like the United States.

If oil demand growth continues to languish and non-OPEC supply continues to rise it would seem that the pressure will be on OPEC in 2013 and in particular on Saudi Arabia who will likely have to cut production for a second time. The Saudi's cut production in November based on slowing demand for their crude oils.

On the supportive side the North Sea Brent pipeline system remains shut-in after an oil leak was discovered on Jan. 14 at a platform connecting to the field. The combination of the Brent logistics problems with what should be another build in both Cushing and PADD 2 crude oil stocks this week should keep the Brent/WTI spread supportive for the short term even though Seaway is now pumping at an expended rate of 400,000 bpd. The expiring Feb Brent/WTI spread has been steadily declining since peaking around $22/bbl in late November in anticipation of the additional barrels moving from the Midwest via Seaway as well as by rail.